Australian Dollar Forecast: Aussie Dollar Under Pressure Amid Weak China Inflation

China Inflation and Policies Put the Aussie Dollar in Focus

On Monday, October 14, inflation figures from China are expected to influence demand for the AUD/USD pair. Sunday’s figures revealed a weakening demand environment as inflationary pressures softened.

The annual inflation rate fell from 0.6% in August to 0.4% in September. More concerning, producer prices fell by 2.8% year-on-year in September after a 1.8% decline in August.

Producers typically lower prices when demand weakens, passing savings onto consumers. Consumers could delay purchases, expecting further price drops, possibly impacting the Chinese economy.

Weak demand in China would also affect the Aussie economy as China accounts for one-third of Australian exports. Additionally, Australia has a trade-to-GDP ratio of over 50%, with 20% of its workforce in trade-related jobs.

Beyond the weekend data, investors may also react to China’s Ministry of Finance press conference. On Saturday, October 12, the Ministry of Finance unveiled new measures to boost the economy. However, economists considered the measures lacking meaningful fiscal stimulus to drive consumer demand.

Expert Views on China’s Inflation Trends and Stimulus

Natixis Asia economist Alicia Garcia Herrero remarked on Saturday’s press conference, stating,

“Still not there. Let’s wait for the third go. It should come at some point. Really needed.”

US Economic Calendar: Fed Speakers in the Spotlight

Shifting focus to the US, investors should monitor FOMC member speeches. FOMC member Christopher Waller is on the calendar to speak. His insights into the US labor market, inflation, and the Fed rate path could influence US dollar demand.

Calls for the Fed to delay further interest rate cuts could push the AUD/USD toward $0.67. Conversely, support for multiple Q4 2024 Fed rate cuts may drive the AUD/USD toward $0.68.

Short-Term Forecast for AUD/USD

Near-term AUD/USD trends will likely hinge on fiscal stimulus news from Beijing, Aussie labor market data, and US retail sales. Stimulus measures targeting consumers and a tighter Aussie labor market could dampen bets on a Q4 RBA rate cut. However, a spike in US retail sales could reduce bets on multiple Fed rate cuts, possibly overshadowing Aussie data and stimulus news from China.

Investors should follow central bank signals and economic indicators, likely influencing AUD/USD trends. Beyond the economic calendar, news updates on the Middle East conflict also require consideration. An escalation could fuel risk aversion and bolster US dollar demand.

AUD/USD Technical Analysis

Daily Chart: AUD/USD Breakout Intact

The AUD/USD remains below the 50-day EMA while holding above the 200-day EMA, affirming bearish near-term but bullish longer-term price signals.

A breakout from the 50-day EMA could signal a move toward the $0.68006 resistance level. Furthermore, a break above the $0.68006 resistance level may bring the $0.68500 level into play.

Traders should consider the weekend economic indicators from China and central bank commentary, which may influence AUD/USD price movements.

Conversely, an AUD/USD drop below the $0.67050 support level could signal a fall toward the 200-day EMA.

With a 14-period Daily RSI reading of 43.74, the Aussie dollar may drop to the 200-day EMA before entering oversold territory.